Price Action: Reading the Tape

Price action trading is the discipline of reading what markets are actually doing, rather than what indicators say they should be doing. Every price bar is a record of a battle between buyers and sellers — and if you know how to read it, the bar tells you exactly who won, by how much, and with what conviction. The candlestick body represents the net result of the session — where we opened and where we closed. A large body means conviction: buyers (or sellers) dominated throughout the session with little resistance. A small body means indecision: neither side could maintain control. The wicks are the most informative part. The upper wick shows rejection of higher prices — buyers pushed up there, but sellers overcame them and pushed price back down before the close. The lower wick shows rejection of lower prices — sellers pushed down there, but buyers stepped in. A long lower wick with a small body (a hammer or pin bar) on a key support level is one of the highest-probability reversal signals in all of technical analysis, because it shows exactly where buyers defended the line. The highest-conviction candlestick patterns are those where price and volume align. A large bullish body with above-average volume on a breakout tells a clear story: many participants transacted at rising prices, meaning there's genuine demand. The same large body with tiny volume is suspect — thin air moves. Close relative to range matters enormously. A session that opens at the low and closes near the high (a full-bodied bull candle with minimal upper wick) is far more bullish than a session that opens and closes in the middle of a wide range. The former shows sustained demand from open to close. The latter shows equal push and pull.

There are over 50 named candlestick patterns in classic Japanese candlestick analysis. You only need about 8 of them — the ones that have documented statistical edges across multiple markets and timeframes. Pin bars (hammers and shooting stars): a small body at one end of a wide range, with a long wick opposite the direction of the expected move. The longer and more prominent the wick relative to the body, the stronger the signal. Context matters enormously — a pin bar in the middle of a range is noise; a pin bar at a key support/resistance level is significant. Engulfing bars: the current candle's body completely engulfs the prior candle's body. A bullish engulfing (large green body after a small red body) signals that buyers overwhelmed the prior session's selling. Best at the end of a clear downtrend or at key support. Inside bars: the current bar's range is completely within the prior bar's range. This signals consolidation and compression. The breakout from an inside bar is often explosive because it releases built-up pressure. Trade the breakout, not the inside bar itself. Doji: a candle where open and close are nearly identical, creating a cross-shaped bar. Signals genuine indecision. Most powerful when it appears after a sustained trend — it signals the trend's momentum is exhausted. Fakey/False breakout: price breaks above a key level, then reverses sharply and closes back below it. This is the 'false breakout' pattern and signals a potential reversal. Smart money often sets these traps deliberately. Critical rule: never trade candlestick patterns in isolation. They are not signals by themselves — they are confirmations of a thesis built from the broader market context: trend, support/resistance, and volume.